Sun | Jul 22, 2018

Walter Molano | Ebbs and flows of globalisation

Published:Friday | June 10, 2016 | 12:00 AM

Globalisation seems to be a novel concept.

Modern culture is a fusion of tastes and trends that cover the globe.

Mexican, Thai and Indian cuisine are readily available in any capital. Korean pop stars and Brazilian footballers are international icons.

Advances in technology, communications and transportation have facilitated the exchange of products, services and ideas.

Weekly, we can keep up with former colleague's dining adventures in Singapore, while forwarding jokes to friends in Madrid. Companies roll out products simultaneously across global markets by paying only a few cents per pound in shipping costs.

Yet, globalisation is nothing new.

Humans have always been on the move since the dawn of time. Some historians attribute Rome's insatiable quench for Chinese silk as one of the factors that led to its economic demise and imperial collapse.

A little more than a century ago, we went through another episode of massive globalisation. Advances in transportation, as well as communications, led to an exponential growth in trade. The Victorian age represented a period of great prosperity for some, but it was also an era of economic frustration for others. Income inequality soared within and across nations. This frustration exploded into a series of confrontations during the 20th century that marked the decline of the globalisation process.

The eve of World War I marked the apogee of 19th century globalisation, but it quickly declined afterwards. While much ink has been spilt on the chain of events that led to the war, very little has been used to analyse the root causes.

Root causes

DeEbbs and flows of globalisationep-seated rivalry between five hegemonic powers was one of the underling factors. The British, Russian, Turkish, Austro-Hungarian and French empires came to blows. At stake were territories throughout the Balkans, Africa, Eastern Europe and Asia.

By the end of the war, the five empires had collapsed or been damaged beyond repair. Out of the ashes rose new superpowers, with varying degrees of imperial aspirations, as well as an economic boom that soured into a global depression.

After the First World War, the political themes with the greatest appeal were found at the extreme sides of the ideological spectrum. Entire societies eschewed the institutional framework provided by traditional political parties. Instead, they opted for the siren's song of messianic populist leaders. In the process, they pushed the planet into an unprecedented economic meltdown and a new world war that cost millions of lives.

The United States and Europe are now following a similar path, as their electorates split in opposite directions and veer towards extreme ideological propositions. Is it just a coincidence that Americans and Europeans have abandoned their traditional political parties for candidates from the far left and far right?

Recent elections in Hungary, Poland, Austria, Spain and Greece have shown the population going for political and economic extremism. Is it logical that, after spending the better part of the past century building up a global marketplace and a network of military alliances, for Europe and the US to walk away?

It is true that millions of menial factory jobs will return to their countries as trade treaties are broken and immigrants are turned away, but an equal number of high paying white collar positions and high tech businesses will also disappear. Does this confirm that the process of globalisation is about to ebb again?

Benefits of globalisation

In the aggregate, the global economy benefited enormously from globalisation. Hundreds of millions were pulled out of abject poverty in the developing world. Like in the Victorian age, it was a small cadre of well-educated and capitalised elites in the developed world who did the best. But a large component of the population in the developed countries fared worse.

As a percentage of the global population, the ones who suffered were much smaller than the ones who benefited. Nevertheless, they are the ones who are now setting the political agenda. In other words, it is the disaffected 'losers' in the US and Europe who are trying to make their nations 'great' again.

We may be reaching the end of another globalisation chapter. If that is the case, then the outlook for the global economy is bleak.

Hopefully, the next time we embark on a process of greater integration, we should do a better job of articulating the benefits to a wider range of the population to prevent the process from going into reverse.

Dr Walter T. Molano is a managing partner and the head of research at BCP Securities LLC.